Negative Notes

Closing does not give too much hope; steps on to support rupee

The markets last week closed on a negative note, tracking both global and domestic cues. Nifty and Sensex closed down around 2.3 per cent and 2 per cent respectively on a weekly basis. On the sectoral front, the only gainer was the IT sector, which closed up around 2 per cent and the losers were Capital goods and Metal sectors which closed down around 10.1 per cent and 7 per cent respectively.

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Support
Nifty has support at 5850 (200 DMA). If Nifty moves down below this level then it may fall further and may retest the previous lows, which were tested in June 2013. On the other hand, strong resistance can be seen at above 5899, if Nifty could break this level, then we can assume that the worst is over for the market.

Liquidity
India’s Central Bank again came out with more steps to support the rupee. The RBI has reduced the Liquidity Adjustment Facility (LAF) for each bank, from 1 per cent of the total deposits to 0.5 per cent which may, in turn, limit access to borrowed funds. Also, the RBI asked the banks to maintain a higher average CRR of 99 per cent of the requirement on a daily basis as against the earlier of 70 per cent. The rules were enforced with immediate effect and may continue until further notice. Century Textiles and Industries came out with their quarterly numbers which showed a 15 fold jump in net profit. The company reported a net profit of Rs 37.65 crore for the first quarter ended June 30, 2013 as compared to Rs 2.41 crore in the same period, last year. The net sales of the company stood at Rs 1573.42 crore in the quarter under preview against Rs 1372.47 crore a year ago.

Profits
The visual effects and animation arm of Tata Group, Tata Elxsi reported over a threefold jump in the consolidated net profit for the quarter ended on June 30, 2013. The consolidated net profit stood at Rs 8.92 crore as compared to Rs 2.61 crore a year ago. The consolidated net sales rose 18 per cent to Rs 173.17 crore in the first quarter of the fiscal 2013-14, against Rs 146.19 crore in the same period last fiscal.

Reduced
Various rating agencies may reduce the forecast on the Indian GDP to 5.5 per cent in this fiscal from its earlier estimate of 6 per cent, on the back of a weak rupee. Also, the reduced hopes of monetary easing were the other reason. The other rating firm, Moody’s Investors services, also added to the concerns for downgrading.

Global
On the global front, the US markets remained mixed throughout the week on the back of mixed quarterly numbers. On the Asian front, the flash HSBC Chinese PMI fell to 47.7 in July from the June’s final reading of 48.2, and was also an 11-month low. But the Chinese Premier’s assurance to deal with various challenges relating to the economy eased most fears. Now, investors around the globe are looking forward to the two-day Federal Reserve’s meeting starting on July 30, for a decision on the US stimulus package.

Events
For US markets, the major events to watch out for include pending home sales, Initial and continuing jobless claims, Markit PMI data and FED’s rate decision. In the euro zone, major data includes business and consumer confidence, inflation and core inflation data. Also, the ECB rate decision will be in focus.

Trigger
For the Indian markets this week, the major trigger will be RBI's policy decision scheduled for July 30, 2013. Also companies like ICICI Bank, Bharti Airtel, Motherson Sumi, Bank of Baroda, Canara Bank, Castrol, Union Bank and IDFC are the majors to announce their quarterly numbers this week. Due to government policy measures the rupee is strong against the dollar and it has support at 58.5250 and 58.4025 (50 DMA). Investors can create a long strangle on Nifty by buying 5900 put option and by buying 6100 call options.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. u00a0

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